Many factors boost fertilizer prices this crop season

Fertilizer prices will likely be higher in 2004 for fertilizer producers, retailers and farmers in California and Arizona. There are a host of factors behind these higher prices.

Cyclically, the rising cost of natural gas, its effect on nitrogen fertilizer production and fertilizer costs makes the headlines right before the spring planting season. 2004 is no different.

According to a recent Wall Street Journal article, U.S. natural gas is the most expensive in the industrialized world, averaging $5.50 per million BTU for the past year. At this level, natural gas represents nearly 80 percent of the cost of manufacturing a ton of ammonia. While natural gas is essential to the production of anhydrous ammonia, the starting point for production of most commercial nitrogen fertilizers, North American nitrogen production has steadily decreased since the mid to late 1990s due to plant closures. With fewer plants functioning in the U.S., manufactures and retailers look to imports to bridge the gap, and according to Fertecon, the worldwide nitrogen consumption is forecast to increase in 2004.

What is interesting is that not only are the higher prices for natural gas impacting fertilizer prices, but also national and international factors are influencing the prices of other key fertilizer components like phosphate and potassium (potash).

Both ocean vessel and rail car shipping costs for transporting raw materials, fertilizers and crops have been driven up because of increased competition with other commodities and a decrease in the total number of available vessels and railcars.

California is a fertilizer deficient state, meaning all basic building blocks for fertilizer products, including ammonia and nitrogen, must be brought in by ship, rail or truck, therefore, higher transportation costs play a significant role in the final fertilizer price.

Inventories down

Higher natural gas and sulfur prices are reflected in increased phosphate prices because anhydrous ammonia and sulfur are necessary components in mining and refining phosphate. Phosphate and potash inventories in the U.S. are down, even below five-year averages. Due to higher raw material costs and a forecasted increase in worldwide potash demand, potash prices increased in the second half of 2003.

U.S. phosphate inventories are significantly below five-year averages, and anticipated import demand growth from Asia and Latin America will trend U.S. prices higher due to increased competition.

U.S. farmers are planting more corn and grain crops to take advantage of higher commodity prices. Due to a weakened U.S. dollar, a gap between expected worldwide production and consumption, as well as a dramatic and continual shrinking of worldwide grain inventories, crop commodity prices are significantly higher for corn and grains this year.

Farmers will likely plant more acres and use more fertilizer to boost production per acre planted, which will further drive up demand for fertilizer imports, which are at the mercy of the weakened dollar and competing demand in regions like Latin America and Asia.

In light of factors including higher raw material prices, transportation costs and global fertilizer supply and demand, which are all beyond the control of the retailer, farmers should expect higher prices this year. At the same time, however, a good relationship and communication between the farmer and retailer can maximize the benefits of fertilizer products.

Good relationship

In light of these factors beyond the control of the retailer, including higher raw material prices, transportation costs and global fertilizer supply and demand, farmers should expect higher prices this year, a good relationship and communication between the farmer and retailer can maximize the benefits of fertilizer products.”

Ongoing and open dialogue between fertilizer retailers and farmers should include crop plans, fertilizer application schedules and methods so that the retailers can offer advice to make best use of the application's potential benefits.